Are Mutual Funds Destroying Your Portfolio

The Hidden Costs Eating Your Portfolio: Fees – Are You Getting Value Back?

When it comes to investing one of the easiest and best things you can do is minimize the costs of your investments.

This may seem like common sense to you. Fees just eat away the return of your investment. But unfortunately, many people, maybe even you, fully understand the fees and the value they’re getting in return. For example, if your financial advisor is saving you 20% per year off your tax bill, but taking a small fee from the investments, you’re most likely coming out ahead. On the other hand, if your advisor is only charging a fee for selling you investments or to manage your investments and then underperforming, well, I hate to break it to you – You’re not getting much value.

The first step is to understand the fees you’re paying.

‍What are the Different Types of Fees?

1. Transaction costs – Many investments have fees or “loads”(commissions) when you buy them. They can range anywhere from a couple of dollars to a couple percent (average of 5%) of the investment value.
2. Operating Expense Ratios (OER) – Mutual funds and Exchange Traded Funds (ETFs) have annual costs to run the fund. This is called the OER. This fee can range from about .04% – 2%+ per year. Mutual fund OER’s tend to be much higher than ETFs because they are generally actively managed, while ETFs tend to be passive.
3. Advisor Management Fees – Many advisor charge a planning fee or Assets Under Management Fee (AUM). This can range from .25% – 1.5+%
4. Other Costs – Investments can have extra costs such as cash drag and taxes in addition to what you actually see come out of your account. According to a study done by the CFA institute, the average mutual fund has these internal costs:

As you can see, these fees can really add up. So, what can you do?

Keep your investing costs low. There have been numerous studies that show it is very hard for an average mutual fund manager to beat the index. So why pay an extra fee if the odds are against you? Get rid of loaded or high costs mutual funds that you’re getting no added value from. Make sure you are getting value from your financial advisor.

Is you advisor just managing investments? That’s okay, but are they keeping other investment costs low? Are they saving you on taxes or managing your risks? Whatever the case is, make sure they’re giving you value for the money you’re paying. All in all, make sure you’re getting a return on the investment you’re spending.

Want a second opinion?

We can analyze the fees you are paying for you so you can make informed decisions. Contact us if you would like an analysis.

You can schedule a time here.

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